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Low Credit Score Homeowners Eye another Option

By Sally Maison
Published: Thursday, November 5th, 2009

Despite government efforts and compliance by lenders, many homeowners still found it impossible to keep their homes. A report published last month reveals 937,840 homes nearing foreclosure. Experts note that July to September 2009 was the worst quarter of all times for homeowners. Many Americans show that they are willing to do whatever it takes to keep their home, with a huge portion of them engaging in subprime lending. With the current economy, it is an option that consumers with a poor credit score are most likely to take.

Low Credit Score Homeowners Eye another OptionStatistics reveal that one if every 136 United States home were in foreclosure last quarter. Nevada, the worst foreclosure-hit state, has recorded one filing for every 23 homes. Vermont saw the least number of homes lost due to debt, which is at one filing for every 5,023 households. Still, that is a 170 percent jump in the filings for the state.

Experts say people who are 30 days behind their mortgage payment normally see their credit score drop 50 to 100 points. But a foreclosure has a more devastating effect on a credit score. Fair Isaac, the formulator of the most widely used consumer rating method, says losing a home because of inability to finance it could hurt a score by 250 to 280 points. That means a person whose score is above 800 points will instantly become a subprime borrower if he experiences foreclosure.

In order to avoid losing their homes, consumers are increasing going to subprime lenders.
Typically, only consumers with a credit score above 720 get prime loans. The rest go to subprime lenders who charge borrowers with excessively high interest rates. However, that does not keep homeowners from going to them. Industry experts recorded that the number of subprime borrowers has been doubled from 1996 to 2006.
With consumers still holding on to the American dream, subprime lending continues to attract million.
But experts say there are many companies and organizations willing to deal with homeowners who have a poor credit score. They warn consumers though that it is their responsibility to choose the right creditor.

They also advise consumers to review any contract thoroughly before signing. Fine prints contain significant information that consumers often miss. Homeowners are, likewise, warned about adjustable rate mortgages.

That type of subprime lending allows consumers to initially borrow at low interest rates. However, the rates become excessively high when lenders begin to adjust the terms. Experts say it is best for consumers to work hard on achieving an excellent credit score before to avoid falling to predatory lenders. They recall that subprime lending contributed greatly to the economic downfall last year.

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